Kevin Glandon – Global Policy Watchhttps://www.globalpolicywatch.com
Key Public Policy Developments Around the WorldFri, 04 Jan 2019 20:38:54 +0000en-US
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1 https://wordpress.org/?v=5.3.3&lxb_maple_bar_source=lxb_maple_bar_sourceInvestment Adviser Hit With $100K SEC Fine, a Reminder that Public Universities are Covered by Pay-to-Play Rulehttps://www.globalpolicywatch.com/2019/01/investment-adviser-hit-with-100k-sec-fine-a-reminder-that-public-universities-are-covered-by-pay-to-play-rule/
Fri, 04 Jan 2019 20:38:54 +0000https://www.globalpolicywatch.com/?p=9085Continue Reading]]>In December, the Securities and Exchange Commission (“SEC”) fined an investment adviser $100,000 for violating the SEC’s pay-to-play rule. The SEC’s rule effectively prohibits investment adviser executives and other “covered associates” of an investment adviser from making political contributions in excess of de minimis amounts ($350 per election if the contributor is eligible to vote for the candidate; $150 if not) to officials of a government entity with which the investment adviser does or may seek to do business. In this case, two of an investment adviser’s covered associates made political contributions to Ohio gubernatorial candidates and a candidate for Ohio Treasurer well in excess of the SEC rule’s de minimis thresholds: $46,908 in total, spread between several candidates and across several years.

This is not the first big fine the SEC has issued for a pay-to-play rule. Indeed, the SEC’s enforcement of the SEC rule has increased significantly since the first case in 2014. Nor does this case involve the largest fine; last summer, for example, a different firm was fined $500,000.

The lesson here for investment advisers relates to the nature of the governmental entities involved. One was a state pension fund, which most investment advisers will recognize is likely to be covered by the SEC’s pay-to-play rule.

But the other was a public university. Many forget that public universities, though academic in nature and often largely independent from other government agencies, may invest public assets. And governing officials at the university may be subject to appointment by an elected official; in this recent case, the Governor of Ohio appoints the members of the university’s board of trustees. This fine serves as a reminder that it is important for investment advisers to carefully evaluate all potential investors for government entity status, and not only investors of public pension fund assets.

Perhaps the most substantial change is the establishment of building fund accounts for political party executive committees, which may now accept unlimited funds from corporations. Also of note is the elimination of an aggregate $10,000 or 50%-of-total-contributions limit on how much a candidate or slate of candidates may accept from certain committees, which would have the practical effect of allowing parties to direct more funding into contested races.

Limits are raised to $5,000 annually to any executive committee or caucus campaign committee (up $2,500 over the prior limit); to $2,000 per election for candidates and slates (+$1,000/election); and to $2,000 annually for permanent committees and contributing organizations (+$500/year). The latter two limits would be adjusted every other year. Limits on cash and anonymous contributions would also be raised to $100 from $50.

Other changes include increased thresholds for campaign finance reporting and modified reporting dates. The Kentucky Registry of Election Finance prepared a helpful summary of the changes.

Kentucky’s new campaign finance law follows a trend we have observed over the past ten years. As contributions to outside groups that are permitted to receive unlimited funds have surged, campaign resources have shifted away from candidates and parties and toward outside groups. One response to this dynamic has been a push to raise contribution limits to candidates and parties. As discussed during the legislative debate, Kentucky’s new law does just that. Expect more states to follow suit.

]]>Pay To Play With New Jerseyhttps://www.globalpolicywatch.com/2016/03/play-to-play-with-new-jersey/
Tue, 08 Mar 2016 14:55:23 +0000https://www.globalpolicywatch.com/?p=6842Continue Reading]]>New Jersey is well-known for having strict, comprehensive, and complex pay-to-play laws. Two new changes to an annual pay-to-play filing required of some government contractors will only enhance that reputation.State law requires a company that receives $50,000 annually through government contracts in New Jersey to file a report by March 30 of the following year disclosing most of its public contracts and political contributions in the state. Covered companies must disclose their 2015 activity online using Form BE by March 30, 2016.

The New Jersey Election Law Enforcement Commission (“ELEC”) recently amended Form BE to include two new requirements effective this year. First, the filer must certify that the statements in the form are true, and that he or she is aware that willfully filing a false statement may lead to punishment. Second, the form now requires that a filer identify whether each disclosed contract “was awarded pursuant to a fair and open process.”These changes may appear minor but are significant for three reasons. First, highlighting the possibility of false statements prosecution signals a potential liability for contractors at a time of increased attention to pay-to-play violations in New Jersey. The state is wrapping up its largest-ever prosecution of pay-to-play violations in which multiple executives of a company pled guilty to evading the pay-to-play laws. Individual sentences included six-figure fines, debarment, and likely jail time, while the company paid $2 million in fines and is no longer in business. In this atmosphere, and with this new certification, a truthful and accurate disclosure is of paramount importance.Second, the fair and open certification touches on other parts of New Jersey’s notoriously complex pay-to-play reporting and prohibition system. For example, certain laws only apply to contracts not awarded via a fair and open process, so identifying a contract as one that was not awarded by a fair and open process highlights the contract for regulatory agencies. Disclosing that a large contract was awarded by other than a fair and open process may create public relations problem for contractors as well.Third, determining whether a contract was awarded pursuant to a fair and open process is not always a simple task. State law requires a contract awarded according to a “fair and open process” to, “at a minimum,” be:

advertised in advance in newspapers or on the contracting entity’s website;

awarded by a process providing for public solicitation for proposals and under a process established in writing; and

opened and announced publicly upon award.

However, the final decision on whether a contracting process was fair and open is left to the entity awarding the contract. This means that the fair and open analysis rules might change based on who awarded the contract. Nonetheless, contractors will have to make this determination and disclosure with the new false statements certification lurking in the background.

As we noted previously and discussed during Covington’s Corporate Political Activity & Government Affairs Compliance Conference earlier this month, the MSRB has been drafting an expansion to its pay-to-play rule, Rule G-37.

Within the past few days, the MSRB received approval from the Securities and Exchange Commission (SEC) to extend its pay-to-play rule. The new rule introduces a number of technical changes, but, essentially, it extends the rule to prohibit a municipal advisor from engaging in advisory work for a municipal government within two years after a covered person associated with the municipal advisor makes a political contribution to covered municipal officials. The prohibition also applies if the advisor engages a third-party solicitor and the third-party solicitor has made a covered contribution within the past two years. The MSRB rule retains its exception for contributions of $250 or less per election to officials for whom the contributor is entitled to vote. In addition to restrictions on contributions, the rule limits solicitation of payments to covered officials and political parties.By way of background, when the SEC proposed its own pay-to-play rule regarding contributions by investment advisers, it recognized that contributions by third-party solicitors hired by investment advisers could raise many of the same issues. To address this concern, the SEC rule limits the use of third-party solicitors to certain persons, including those regulated by the MSRB and those regulated by the Financial Industry Regulatory Authority (FINRA)—but only if the MSRB and FINRA adopt a pay-to-play policy that passes muster before the SEC. Given that neither body had finalized its pay-to-play rule, the SEC indicated that staff would not recommend enforcement.

Now that the MSRB’s rule is set to go into effect this summer, we will be watching the progress of the FINRA rule. At this point, the SEC is expected to act on the FINRA rule before April. Expect the SEC’s temporary reprieve on enforcement to end this year once both MSRB and FINRA rules are in effect, which is on track to happen this fall.